• Skip to primary navigation
  • Skip to main content
  • Skip to footer
Proper Cents

Proper Cents

Take Control of Your Finances

  • Guides & Advice
        • Investing & Retirement
          • Complete Guide to Start Investing
          • Complete Guide to Retirement Savings
          • How Much Money Do I Need to Retire?
          • Roth IRA Conversions
          • What is an ETF?
        • Mortgages
          • Complete Guide to Refinancing
          • How to Get Rid of PMI
          • How Much Does it Cost to Refinance?
          • How to Get a Mortgage Pre-Approval
          • What is a HELOC?
          • What is a Cash-Out Refinance?
          • What to Know Before Refinancing
          • Pay Off the Mortgage vs. Invest
          • 15 vs. 30 Year Fixed-Rate Mortgage
        • Loans
          • Complete Guide to Personal Loans
          • Complete Guide to Student Loans
          • How to Refinance Your Student Loans
          • How to Qualify for Student Loan Forgiveness
          • How to Consolidate Debt With a Personal Loan
        • Credit Cards
          • Complete Guide to Credit Cards
          • Credit Card Pitfalls to Avoid
        • Banking
          • Complete Guide to Checking Accounts
          • Complete Guide to Savings Accounts
  • Recommended Services
6 Steps to Financial Freedom

What is Your Personal Savings Rate?

Home » Personal Finance » What is Your Personal Savings Rate?
October 6, 2020

UPDATED: April 22, 2022

Personal Savings Rate

Saving money is one of those necessary burdens of life. We all know we should probably be saving more, but there are bills due and unexpected expenses that crop up, and some months it can feel impossible to save anything at all. If you want any chance at retirement, early or traditional, your personal savings rate is an important number to know, understand, and track. Here’s how to calculate your personal savings rate and why it should matter to you.

Table of Contents

  • Personal Savings Rate Defined
  • How To Calculate Your Personal Savings Rate
  • Why Does Personal Savings Rate Matter?
  • A “Good” Savings Rate
  • Increasing Savings Rate

Personal Savings Rate Defined

The Bureau of Economic Analysis defines a personal savings rate as “income left over after people spend money and pay taxes.” While this is a fair definition, it also implies that savings are the leftovers, not something you do intentionally month to month.

Put another way; your personal savings rate is the amount of money you’re setting aside monthly, or annually, towards investments, retirement accounts, or savings accounts taken as a percentage of your overall income.

How To Calculate Your Personal Savings Rate

Savings rate is a reasonably simple calculation.  You take the amount of money you’re saving per month, including savings accounts, retirement plans, and investments, and divide that by the amount of money you earn per month.

Side note: The widely accepted calculation for savings rate uses gross income (before taxes) instead of net (after taxes) for simplicity. You can also choose to calculate the numbers annually by taking your annual savings divided by your gross yearly income.

For example, let’s say each month you put away:

  • $500 into a Roth IRA
  • $400 into a 401K
  • $100 into an emergency fund

That’s $1,000 per month into various savings accounts. If your income is $60,000 per year, or $5,000 per month, you’re sitting at a 20% savings rate ($1,000/$5,000 = 20%).

Best Free Financial App
Personal Capital
Get Started

Why Does Personal Savings Rate Matter?

Personal savings rates carry different weights for various people. In certain communities, like FIRE (Financial Independence, Retire Early), people rely heavily on their savings rate to predict an early retirement date.

For others, it’s used as a barometer to gauge whether they’re saving enough to eventually retire, where the general recommendation is to save 15% of your income. There is a strong correlation between personal savings rate and the ability to retire. A higher savings rate increases the likelihood of a timely or even early retirement.

A “Good” Savings Rate

Traditionally, Americans have struggled to save money. Over the last 20 years, the average savings rate has hovered below 10%. But ultimately, whether your savings rate is good or not depends on your goals.

Taking a straightforward example that doesn’t factor investment returns into the equation, if you’re 30 years old and want to retire in 25 years at age 55, saving 3% of your $60,000 income might not cut it.

$60,000 x .03 = $1,800 x 25 years = $45,000

If you decide to up your savings rate to 20% or more, things start to look a little brighter. (Jumping from 3% to 20% may seem like a stretch, but when you break it down, it’s the difference in saving $850 more per month.)

$60,000 x .20 = $12,000 x 25 years = $300,000

Play around with some different numbers based on what you think you can save to see the impact it could have on your retirement goals.

Increasing Savings Rate

Calculating your personal savings rate is only half the battle. Once you know your number, use the following list of tangible ways to increase it.

Take It Off The Top

The only foolproof way to make sure you’re saving money every month is to pay yourself first. It’s incredible how even planned savings don’t seem to happen if you wait to see what’s leftover at the end of the month.

Seize the opportunity and plan to make automatic deposits (or set reminders to do it manually) at the beginning of the month or shortly after you receive a paycheck. Saving money should be viewed in the same way as paying bills, a necessity that takes precedent over discretionary spending.

Cut Costs

When you really begin to track where each dollar is going with a budget, it can become glaringly obvious where you may be overspending. If you love to eat out and are currently doing so five nights a week, try to cut back to four nights and save what you would have spent on that other night out.  If you love to shop and find that you’re spending $500 per month on clothes, try to limit yourself to $300 and invest the other $200.

Over time you can resort to more drastic measures to cut costs, but it’s essential not to feel like you’re depriving yourself at first.  Instead, try to re-frame savings as an opportunity to support your financial independence by setting aside money for later.

Start A Side Hustle

When you hit bottom on cutting costs, the only other option is to increase your income. There are plenty of online side hustles out there that can be done entirely from home.

Consider dedicating one night a week or one day of the weekend to performing a side hustle like freelance writing or social media management and vow to save all of your profits. Since this income will be separate from your paycheck, it should be easy to siphon off to another account without issue.

Seek Out A Raise

If you’ve been working hard at your company for over six months and you’ve been contemplating asking for a raise, now could be the time to do it. Create a plan for how you’ll allocate future salary increases to ensure the influx of funds doesn’t get squandered away.

Your personal savings rate is essential to know, simple to calculate, and easy to increase with just a few small lifestyle changes. Take control of your savings rate, and you’ll be taking control of your financial future.

Best Free Financial App
Personal Capital
Get Started

Category iconPersonal Finance

Learn More on Proper Cents:

Investing
Investing
Mortgages
Mortgages
Credit Cards
Credit Cards
Personal Finance
Personal Finance
Banking
Banking
Auto Loans
Auto Loans
Insurance
Insurance
Personal Loans
Personal Loans

6 Steps to Financial Freedom

From Proper Cents

Calculate Expenses and Find Your Living Cost

Calculate Expenses and Find Your Living Cost (Step 1)

Make a Budget and Track Your Money

Make a Budget and Track Your Money (Step 2)

Consolidate Debt

Consolidate Debt and Streamline Payments (Step 3)

Save a $5000 Emergency Fund

Save a Starter Emergency Fund of $5000 (Step 4)

Automate Retirement and College Savings

Automate Retirement & College Savings (Step 5)

Pay Off Debt and Finish Emergency Fund

Pay Off Debt and Finish Emergency Fund (Step 6)

Reader Interactions

Leave a Reply Cancel reply

Your email address will not be published. Required fields are marked *

Footer

About Proper Cents

Proper Cents is part of the Waaz Media family, and focuses on educating individuals and families about all things related to personal finance.

The mission of Proper Cents is to give a little boost to those looking for a brighter financial future.

Links

About Us
Contact Us
Privacy Policy
Sitemap

Categories

Reviews
Auto Loans
Banking
Credit Cards
Insurance
Investing
Mortgages
Personal Finance
Personal Loans
Small Business
Student Loans

Join Us on Social

  • Facebook
  • Instagram
  • Twitter

Copyright © 2025 Waaz Media, LLC. All rights reserved.